September 29, 1998
Poor benefit most from transforming Social Security into system based on savings
Current system imposes huge "opportunity cost" on poor with no other money to save
"The poor would benefit most from transforming today's Social Security system into one based on individual savings," according to a new study from the Cato Institute. "For low-wage workers, the opportunity cost of forfeiting 12.4 percent of income to the government is tremendous. . . . The money they are forced to contribute to the federal government's retirement plan is often the only money they could invest in a true savings program. The abysmal rate of return provided by Social Security not only translates into meager benefits that leave many in poverty but also represents a tremendous lost opportunity to accumulate substantial savings."
In "The Working Poor and Social Security Privatization: Restoring the Opportunity to Save," Cato Institute project assistant Carrie Lips offers a number of concrete examples, including that of a 28-year-old worker making $13,500 per year. The worker pays $1,674 in payroll taxes (including both the employer and employee share of the tax) and in return for a lifetime of contributions is promised a Social Security check equal to $815 in today's dollars upon retirement at age 67. "That represents a rate of return of just 2.75 percent, well below the return one could expect from a private savings plan," Lips observes.
"Had this low-wage worker participated in a conservative savings program that invested in bonds and earned just a 4 percent rate of return (approximately the historic average rate of return for corporate bonds), his monthly payment in retirement would be $1,243, more than $400 greater than Social Security's benefits." Returns from a mixed stock-and-bond plan would provide much higher benefits.
"Today, despite Social Security's intergenerational wealth transfer system that consumes 22 percent of the federal budget, . . . 19 percent of widows and 29 percent of elderly African-Americans have fallen through Social Security's so-called safety net and live in poverty," Lips writes.
The study notes that critics of privatization believe that "such a system is somehow riskier than the current program's unfunded political promise." But over time, the stock market has generated stable gains, and "a system of personal retirement accounts could easily incorporate provisions that would alleviate such concerns," such as a "safety net financed out of general revenues to ensure a minimum benefit."
Lips notes that "any discussion of the risks of privatization must also acknowledge the risks of staying with the current system. With the program underfunded by $9 trillion, retirees face the risk that their benefits will be cut and workers face the risk that their taxes will be increased." Indeed, "there may not be just a 'risk' that Social Security will be unable to keep its promises, it may be inevitable."
September 25, 1998
Despite Telecom Act of '96, U.S. is saddled with outmoded regulations
New Cato Institute book features experts' views on how to do it right
The Telecommunications Act of 1996, described by President Clinton at the signing ceremony as a law that will "help to create a marketplace where competition and innovation can move as quick as light," has turned out to be nothing of the sort, according to a new book from the Cato Institute.
Regulators' Revenge: The Future of Telecommunications Deregulation features chapters by 16 experts who explore topics that include true deregulation, interconnection, spectrum allocation and property rights and so-called "information have-nots." The book is edited by Solveig Singleton, director of information studies at the Cato Institute, and Tom W. Bell, assistant professor of law at Chapman University and a Cato adjunct scholar.
The editors argue that success in telecom reform ought to be judged by three main standards: whether it moves markets toward greater freedom; whether there is "light at the end of the regulatory tunnel," such as true deregulation of pricing at all levels; and whether it includes "long-term plans for closing down the Federal Communications Commission and returning most or all of its functions to the states or to the private sector." Judged by those standards, they say, the 1996 act falls short.
Instead of more market freedom, provisions such as elaborate universal service rules make the market less free. Instead of complete price deregulation, there have been calls for new regulation because cable rates went up following passage, even though that was "a predictable response to loosening price caps that starved the industry of capital." And instead of shrinking, the FCC's "regulations, not to mention its budget and staff, keep growing," Bell and Singleton observe.
"Because proponents of the act described it as 'deregulation,' both apologists for and critics of the act now mischaracterize its salient flaws as market failures rather than government ones," the editors note. "By deregulating impartially and imperfectly, the act threatens to invite a revenge of the regulators."
Among the book's contributors are Alfred Kahn, who deregulated the airline industry in the 1970s, author and legal expert Peter Huber, Bell Atlantic senior vice president Tom Tauke, FCC economist Evan Kwerel and TV executive Stanley Hubbard.
Copies may be purchased ($9.95 paper, $18.95 cloth) by calling 800-767-1241 or through Cato's online store.
September 23, 1998
Success of airline deregulation proves market is best arbiter
Even a small step toward reregulation would be a step in the wrong direction
Despite overwhelming evidence that airline deregulation has worked well for two decades, "the federal government is trying to poke its regulatory fingers back into the airline business," according to John E. Robson, former chairman of the Civil Aeronautics Board, writing in the newest issue of Regulation magazine. Robson, who initiated the airline deregulation process, warns that "even a small step toward reregulation would be a step in the wrong direction. Legislative and executive branch seeds have a troubling history of growing into weeds that choke industries."
In "Airline Deregulation: Twenty Years of Success and Counting," Robson observes that, twenty years ago, the airline regulatory process was so tangled and cumbersome that it began to resemble procedural spaghetti. The CAB literally had Washington bureaucrats telling each airline exactly where it could land and exactly how much-or how little-it could charge. It became a textbook case of how the regulatory process can overwhelm substance and how regulation protected the airlines from competition at the expense of consumers and competitors.
"By the time President Ford appointed me as the CAB chairman in 1975, the airline industry was like a forty-year-old still living at home with his parents," says Robson, and the CAB was like an overbearing parent. Regulators and executives spent time and energy on hundreds of issues as menial as whether or not the employees of two affiliated airlines could wear similar uniforms.
Robson argues that today, "by every reliable measure, the American public has benefited from airline deregulation. . . . America's airline system is now the envy of the world, a competitive and efficient system that provides more service, to more people, to more cities, at lower prices than ever before." Robson laments the fact that, in spite of the clear benefits of deregulation, House Speaker Newt Gingrich has said that some form of airline regulation is likely to pass in 1998. And recently the Department of Transportation proposed guidelines that "strike at the underpinnings of market freedom by attempting to prescribe both the number of airline seats in a market and their price."
Deregulation has not created a perfect system, Robson explains. But that does not mean the entire system is broken and in need of a government-mandated repair. "No regulatory body can do a better job of pricing fares or figuring out where and when people ought to fly than can the airlines and their passengers."
Other articles of interest in the new issue of Regulation include Jonathan Adler's critique of the EPA in "Bean Counting for a Better Earth" and Thomas Hemphill's case for self-regulation of the distilling industry in "Harmonizing Alcohol Ads."
September 18, 1998
As impeachment becomes talk of the nation, Cato publishes guidelines for its use
Impeachment primer examines constitutional debates and historical precedents
"The Framers of the Constitution considered the impeachment mechanism so crucial that it emerged at the very beginning of the constitutional convention," but its use has been quite limited over the past two centuries. A new Policy Analysis from the Cato Institute's Center for Constitutional Studies provides a valuable guide to the original constitutional debates, the textual provisions of the Constitution, past impeachments and modern academic scholarship. It discusses in detail the 15 cases in which impeachment has been voted by the House of Representatives over the past two centuries, including 7 in which the Senate has then voted to convict.
The author of "Impeachment: A Constitutional Primer," Jason Vicente, makes no judgment about the Clinton scandal itself or about the appropriateness of impeachment as a congressional response to it. Rather, he simply provides a fascinating collection of useful information about the function and history of the impeachment process under the American Constitution.
Beginning with the constitutional text, Vicente notes that the constitutional division of responsibility-the House of Representatives has the "sole Power of Impeachment" while the Senate has the "sole Power to try all impeachments"-was designed to protect the president and other government officials against potential abuse of the impeachment power.
The 15 individuals impeached by the House of Representatives include 1 president (Andrew Johnson), 12 judges, a senator and a cabinet member. Although scholars debate the range of possible impeachable offenses, Vicente notes that most agree that if an offense is indictable, it is also impeachable. "There is a fundamental inconsistency between a president's oath to faithfully execute the law and his having himself committed offenses indictable under that law," he observes.
But beyond that, Vicente maintains that "the office of president is an office of trust and honor. The winner of a presidential election has only a qualified right to enter and hold the office of president. He cannot assume the office without taking the constitutional oath. If a president should thereafter abrogate his oath, Congress has a responsibility to vindicate the Constitution and the rule of law it secures."
September 17, 1998
Failure of Quadrennial Defense Review to challenge status quo reflected in budget
Congress considering DOD spending bill designed to meet threat that doesn't exist
Although the secretary of defense and the joint chiefs of staff have asked President Clinton for a large increase in the Department of Defense's budget, a new Cato Institute study finds that the United States is spending more than it needs to on defense because a major review of Pentagon strategy came up short. Last year's Quadrennial Defense Review "failed to recognize a more benign threat environment" and "did not question the military budget level and force structure," the report says.
In "The Quadrennial Defense Review: Reiterating the Tired Status Quo," David Isenberg says that the Pentagon's third effort to chart a post-Cold War military strategy and force structure "epitomized status quo thinking. While some tinkering was done, the military budget, force structure, and battle doctrine were all left largely intact." The QDR didn't consider changing the requirement that U.S. forces be structured to fight two major regional conflicts nearly simultaneously and didn't consider terminating any Cold War-oriented weapons systems.
"The biggest sacred cow was the Pentagon's insistence on the existence of a robust 'threat,' despite all the evidence to the contrary," Isenberg observes. "Although the QDR seemed oblivious to the issue, a reassessment of the threat should have been of paramount importance. Today and for the foreseeable future, the international security environment will remain benign. U.S. military capabilities should be considered, not in isolation, but relative to those of other countries, particularly those hostile to the United States. Spending at Cold War levels in a benign international environment is a waste of taxpayer dollars."
To justify Cold War level budgets, the Pentagon cites threats from "rogue" states and the potential future threat from some new superpower, what the military calls a "major peer competitor." But Isenberg points out that a recent report from the National Defense University found that the threat from rogue states like Iraq and North Korea is diminishing, not growing. And the only two candidates for threatening superpower status-China and Russia-couldn't become superpowers for many years, if at all.
The U.S. strategic approach is crucial, Isenberg says. "Significant force reductions could be achieved if the United States were to adopt a national security strategy of being a 'balancer of last resort,' instead of using its military forces to attempt to 'shape' the international order." David Isenberg is an analyst at DynMeridian, a private firm that advises the U.S. government on national security issues. The views expressed in the Cato Policy Analysis are his own.
September 15, 1998
New book makes political and economic case for private U.S. retirement option
Sound economics and practical experience underlie A New Deal for Social Security
As Congress and the White House move toward making fundamental choices about the nation's Social Security system sometime early next year, the Cato Institute today published a new book that "lays out the political and economic case for transforming Social Security" into a "system based on individual liberty and private capital."
A New Deal for Social Security, by Peter J. Ferrara and Michael Tanner, provides a wealth of information about the system, beginning with its origin and history, and examines its impact and that of a privatized alternative on workers in general and on the poor, women, minorities and families in particular. It traces the worldwide revolution in social security privatization, which began nearly 20 years ago in Chile and has now spread to many other countries in Latin America and around the world.
Ferrara and Tanner describe in detail a "practical and workable" privatization plan for the United States and discuss all of the many policy questions involved:
- "Any privatization proposal should irrevocably commit and emphasize that currently promised benefits would not be reduced or changed."
- "A privatized retirement system would not require payments as large as the current Social Security system, because the investment returns of the private system can provide several times the benefits for the same amount of payments."
- Provision should be made to give those who opt out of the government-run system credit for taxes they and their employers have already paid into Social Security. Workers could be given government bonds that "could then be partially cashed in each year to help finance the worker's retirement benefits."
The book also examines such topics as government regulation of the private retirement investments, tax policy and continuing to offer government-run Social Security as an option for those who prefer it. The cost of transition to a new system is the subject of an entire chapter of the book that explains "exactly how the transition can be financed without significantly detracting from the overall benefits of reform."
"Perhaps the single most important reason for privatizing Social Security is that it would restore to American workers freedom of choice and control over the one-eighth of their earnings that is now consumed by Social Security," the authors declare. "No other single change could do so much to increase the freedom and prosperity of the American people."
Copies may be purchased ($10.95 paper, $19.95 cloth), by calling 800-767-1241.
September 11, 1998
Time has come for a change in strategy for free traders, Cato study says
Unilateral elimination of trade barriers represents best policy option
"The rising tide of 'globalphobia' in the midst of unrivaled prosperity demonstrates that free traders are doing something wrong," according to a new study from the Cato Institute's Center for Trade Policy Analysis. "Free traders should expand beyond their traditionally exclusive reliance on negotiated liberalization and launch a campaign for the unilateral elimination of specific U.S. trade barriers."
In "A New Track for U.S. Trade Policy," Brink Lindsey, director of Cato's Center for Trade Policy Studies, notes that, for decades, "free traders in this country have pursued trade liberalization through a strategy of diversion and appeasement: diverting attention from opening the U.S. market by focusing on exports and foreign policy goals, and appeasing protectionists at home with 'fair trade' policies in the hope of preventing even worse import barriers."
But the end of the Cold War meant that this strategy no longer worked well. "In this new environment, continued reliance on diversion and appeasement has actually become self-defeating," Lindsey says. His prescription is "a campaign to eliminate U.S. trade barriers unilaterally-that is, regardless of whether other countries make similar reforms." Among his specific targets:
- the antidumping law, which is "the single most effective tool for erecting new protectionist barriers against foreign goods";
- high tariffs, through which the United States still imposes restrictive duties on many products, especially textiles and apparel;
- sugar, peanut and dairy programs, which force Americans "to pay prices far above world levels"; and
- the Jones Act, a 1920 law that requires all merchandise shipped between U.S. ports to be carried on U.S.-owned vessels. The International Trade Commission estimated that repeal would drop the price on affected shipping services by 26 percent.
"Free traders today are in that happy circumstance when holding to their ideals is the most intensely practical thing they can do," Lindsey concludes.
Trade Policy Analysis no. 4
September 9, 1998
"Epidemic of union-related violence" in U.S. makes federal action necessary
1973 Supreme Court ruling has made it all but impossible to prosecute union extortion
A 1973 Supreme Court decision effectively made vandalism, assault and even murder by union officials exempt from federal anti-extortion law, and "the result has been an epidemic of union-related violence," according to a new study from the Cato Institute.
In "Freedom from Union Violence," author David Kendrick traces the history of labor law and union violence during the 20th century, beginning with the notorious case of a former Idaho governor murdered in 1905 by union mineworkers who felt he had betrayed them by calling in federal troops during a strike. Efforts in subsequent years to use various state and federal laws to punish union violence were often ineffectual.
In 1946 Congress passed the Hobbs Act, aimed at a wide spectrum of union violence. Among other things, it defined criminal extortion as "the obtaining of property . . . by wrongful use of actual or threatened force, violence or fear [emphasis added]." In using the word "wrongful," Kendrick says, "Congress left a narrow opening through which the U.S. Supreme Court would push a bulldozer in 1973." In its decision in United States v. Enmons, the Court upheld a lower court ruling that three electrical union members indicted for sabotaging a substation and other violence had done nothing illegal because they were pursuing "legitimate" union objectives.
"The Court's misreading of the clear legislative history of the Hobbs Act is incredible," he writes. Kendrick, who is program director at the National Institute for Labor Relations Research, draws on his organization's comprehensive data file to quantify the result. "Since 1975, at least 181 Americans have died as a result of union violence," the data show. "There have also been more than 5,600 assaults, kidnappings, and threats-almost all committed by striking union militants."
Kendrick catalogs many of the most serious instances of union violence since the Enmons decision and reports that despite nearly 9,000 incidents of union-related violence since 1975, there were fewer than 2,000 arrests and only 258 convictions. Research indicates that "barely 3 percent of the violent incidents recorded in the Institute's data file have led to convictions," and thus "thousands of acts of union violence have gone unpunished," the report concludes. "Legislation such as the Freedom from Union Violence Act may be the only way" of dealing with the problem.
September 7, 1998
Union members have most to gain from Social Security privatization
Original labor leaders opposed government-run retirement system
"The [Social Security] payroll tax is a tax aimed directly at union workers," Michael Tanner observes in a new study released on Labor Day by the Cato Institute. "The payroll tax is the largest tax most union workers pay. If they had the opportunity to save and invest 12.4 percent of their income-the amount now taken by Social Security-low-wage workers would be able to accumulate substantial nest eggs," since the surest route to wealth creation is savings and investment.
In a briefing paper titled "Union Workers Should Support Social Security Privatization," Tanner, director of health and welfare studies at Cato, notes that "when it comes to the accumulation of wealth, workers are at a distinct disadvantage. The bottom 50 percent of American income earners own just 2 percent of the nation's financial wealth. Harvard economist Martin Feldstein has estimated that if Social Security were privatized, the concentration of wealth in America would be reduced by half," through the creation of new wealth in workers' retirement accounts.
Tanner argues that "privatizing Social Security would allow low-wage workers to participate in the wealth-creating mechanisms of saving and investment" and lead to what Sam Beard, a former aide to Sen. Robert Kennedy (D-Mass.), has described as "democratization of capital."
It is ironic that "union bosses have become the last die-hard defenders of Social Security, because unions were among the program's first opponents," Tanner observes. "Samuel Gompers, the father of the American labor movement, called the concept of government-provided social insurance, 'in its essence undemocratic.'"
By opposing privatization of Social Security, "union leaders are sacrificing the best interests of American workers," Tanner argues. "A privatized Social Security system, in which workers are allowed to divert their payroll taxes to individually owned, privately invested accounts, similar to individual retirement accounts or 401(k) plans, would provide workers with better and more secure retirement benefits, would give them a greater voice in corporate management and a sense of ownership and participation in the American economy and would avoid painful tax hikes or an increase in the retirement age."
September 3, 1998
A Fiscal Policy Report Card on America's Governors: 1998
Cato report card finds "clear trend toward more spending at the state level"
Only two of the nation's governors received a grade of "A" on the Cato Institute's fourth biennial fiscal policy report card, released today. William Janklow of South Dakota and John Rowland of Connecticut got the top scores, and Janklow had the distinction of having the best record of reducing taxes and restraining revenue growth. He implemented a property tax cut worth some $80 million. But many other governors "recommended budget increases of more than 7 percent this year, roughly three times the rate of inflation" and got much lower grades. Three governors got an "F" on the 1998 report card-John Kitzhaber of Oregon, Lawton Chiles of Florida and Mel Carnahan of Missouri.
Governors of the largest states received a wide range of grades: California's Pete Wilson, C; Texas's George W. Bush, B; New York's George Pataki, B; Pennsylvania's Tom Ridge, B; Illinois's Jim Edgar, D; Ohio's George Voinovich, D; Michigan's John Engler, B; and New Jersey's Christine Todd Whitman, B.
"A Fiscal Policy Report Card on America's Governors: 1998," by director of fiscal policy studies Stephen Moore and policy analyst Dean Stansel, shows that "since 1996 state spending has grown roughly 50 percent faster than federal expenditures. These inflated budgets are now even being promoted by Republican governors who came into office in 1994 and 1995 promoting a tax-cutting agenda." Among the other key findings of the new study:
- Governors elected in recent years "have tended to be more aggressive in cutting taxes than those first elected before 1993."
- Northeastern states in particular have moved in the most fiscally conservative direction in the last four years-reversing the high tax and spend policies of previous governors there.
- For the first time in four editions of this report card, "party affiliation did seem to make a major difference in the governor's records of fiscal restraint. Republicans substantially outperformed Democrats."
"There has been a clear trend toward more spending at the state level during the past two years," as a booming economy has provided government officials at all levels a bumper crop of tax revenue that they're all too willing to spend, according to Moore and Stansel. The report card's grading mechanism is based on purely objective measures of each governor's fiscal performance. Those with the most fiscally conservative records-the tax and budget cutters-get the highest grades. The complete report contains detailed state-by-state data.
September 1, 1998
U.S. should phase out troop presence on Okinawa
Nearly a decade after the end of the Cold War, deployment no longer justified
The presence of 27,000 American military personnel on the Japanese island of Okinawa should be phased out, according to a new study released today by the Cato Institute. "The end of the Cold War and the transformation of the strategic environment of East Asia have eliminated the need to deploy the Third Marine Expeditionary Force and other military units stationed on the island-as well as elsewhere in Japan," Cato senior fellow Doug Bandow explains.
In "Okinawa: Liberating Washington's East Asian Military Colony," Bandow notes that the defense establishments in both the United States and Japan "have been busy for years concocting new justifications for old deployments." A Marine briefing paper asserts that the Marines are there "to defend Japan." From whom? Bandow answers, "The Soviet Union may be gone, but, the Marines say, there are China and North Korea. Such desperate threat procurement is not compelling. China has so far been assertive rather than aggressive in East Asia. Japan, with the world's second largest economy, is capable of maintaining a military with significant defensive potential that could deter future Chinese aggression. North Korea is an even more pitiful replacement for the threat posed by the Soviet Union. The country is bankrupt and starving. Pyongyang poses no credible threat to Japan."
Other justifications are no more compelling. "Marine Corps briefers also offer a chart describing 'critical oil shipping lanes.' But no naval force is threatening to close those lanes or has the capability to do so. Moreover, it is not clear what the Marines could do if someone made such an attempt. And those are sea-lanes to Japan, not America. Japan could easily develop the capability to protect those lanes with enhanced naval and air forces," Bandow says.
While Japan pays much of the cost of maintaining the U.S. military presence there, Bandow argues that "we should send American soldiers abroad only if doing so advances U.S. interests, not because a foreign country is willing to pay to be protected."
A 1995 incident in which a Marine was convicted of raping a school girl and the callous response of U.S. military officials "encouraged the growth of passionate anti-base activism" on Okinawa. "It is time to allow Okinawans to take control of their own destiny," Bandow concludes.
August 24, 1998
Administration's Taiwan policy has "built-in, extremely dangerous contradiction"
Best course: liberalize arms sales, but offer no U.S. defense guarantee, Cato study finds
During his recent trip to China, President Clinton changed U.S. policy on Taiwan in a way that "combines the worst, most dangerous features of appeasement and firmness," according to a new study, released today, by Cato Institute vice president for defense and foreign policy studies Ted Galen Carpenter. Carpenter also points out that many American conservatives are suggesting a policy that is nearly as dangerous.
In "Let Taiwan Defend Itself," Carpenter observes that during the China visit, U.S. officials reportedly gave Chinese leaders "private pledges" that America would cut or downgrade arms exports to Taiwan. At the same time, however, Clinton "also implied that the United States would intervene militarily to defend Taiwan from attack." Carpenter says that Clinton's approach leaves Taiwan "highly vulnerable to a PRC intimidation or outright military coercion," yet "if Beijing follows up on that advantageous situation and actually seeks to coerce Taiwan," the United States faces "the risk of a disastrous U.S.-Chinese war."
Carpenter points out that a competing reckless approach is being urged by some American conservatives who "propose a strategy that would include an explicit pledge to protect Taiwan and have the United States at least flirt with actively encouraging a Taiwanese declaration of independence." Such encouragement may be superfluous, since "public sentiment for an independent Taiwan is growing slowly but inexorably-especially among younger Taiwanese for whom the mainland is an alien and threatening place." But a U.S. commitment to defend Taiwan "would have dubious credibility and virtually invite a challenge," he notes.
Although Taiwan has some economic importance, "there is simply no adequate strategic reason for the United States to risk war" to defend the island, Carpenter says. Instead, the United States should "liberalize its arms export policy and allow Taiwan to buy the weapons it needs to become and remain militarily self-sufficient." Taiwan's "best hope for eluding conquest" is "a 'porcupine' strategy-raising the probable costs to a would-be conqueror so high that no rational policymaker would contemplate launching a military strike." Selling more U.S. arms to Taiwan "would maximize the chances that Beijing would use only peaceful measures in its campaign to achieve reunification."
Policy Analysis no. 313
August 6, 1998
State and local laws aimed at Burma are unconstitutional, study finds
Three major constitutional principles violated by anti-Burma laws
Efforts by Massachusetts and at least 20 local governments (including those of New York City and San Francisco) to impose sanctions against companies that trade with Burma violate three major constitutional principles, according to a study published by the Cato Institute. Authors David R. Schmahmann and James S. Finch note that the Supreme Court has repeatedly and emphatically struck down similar laws.
In "State and Local Sanctions Fail Constitutional Test," Schmahmann and Finch describe in detail the three fundamental constitutional provisions that bar state and local governments from targeting companies that invest in or do business with countries like Burma.
- Only the federal government is constitutionally empowered to make foreign policy. "In domestic matters, the Framers granted only narrow, enumerated powers to the federal government, and reserved the rest to the states and the people. With respect to foreign affairs, however, the situation is reversed: the Constitution gives the federal government broad authority, and imposes strict prohibitions on the states."
- Local anti-Burma laws violate the Commerce Clause of the Constitution. Article I, Section 8, of the Constitution prohibits states and localities from passing laws that burden foreign commerce by creating "discriminations favorable or adverse to commerce with particular foreign nations." The "anti-Burma laws, which are by definition designed to have a foreign effect," amount to a "shredding of the commerce clause."
- Local anti-Burma laws violate the Constitution’s Supremacy Clause. Local government sanctions collide head-on with 1997 federal law that regulates trade and investment with Burma. The ordinances are "an attempt to implement through local action a policy expressly considered and rejected by the Senate." Under the Constitution’s Supremacy Clause, federal law must always preempt state law where the two conflict in an area of legitimate authority for the federal government.
The Massachusetts law is being challenged in U.S. District Court in Boston, in a lawsuit brought by the National Foreign Trade Council. An initial hearing in the case is set for September 23, 1998.
David R. Schmahmann is a partner in the Boston law firm of Nutter, McClennen & Fish. James S. Finch is a partner in the international law firm of Russin & Vecchi and its resident partner in Rangoon, Burma.
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